In this lesson, the process of determining material weaknesses in the context of an integrated audit is discussed. The importance of evaluating the severity of each deficiency in the internal control over financial reporting is emphasized to identify material weaknesses. A practical example is provided to highlight how different deficiencies may or may not result in a material weakness affecting the overall financial statements. Furthermore, the concept of compensating controls is introduced, as well as its significance in mitigating the effect of deficiencies on financial statements. The lesson also explores the different types of compensating controls and explains how they can limit the severity of a deficiency and prevent it from becoming a material weakness. However, it is noted that compensating controls do not eliminate deficiencies and that individual issues within departments still need to be addressed and fixed.